In Defense Of For-Profit Colleges

One of the biggest blind spots of policymakers and pundits is the inability to take target market into account. For example, you can’t just compare the wages of employees at Hilton Hotels vs Motel 6’s and conclude that Hilton Hotels are superior because the employees are paid more. You have to take the companies vastly different target market into account. Motel 6’s target a much poorer and cost sensitive segment of the economy, and so it’s understandable that they pay their employees less. In addition, Motel 6’s also hire from a lower socioeconomic level than does Hilton Hotels, so again you’d expect their pay to be lower (in exchange for lower productivity, ie education, ability to speak English, etc). What seemed like a bad wrap for the poor without taking target market into account, turns out to be an overall net gain when it’s included (who doubts that from the poor’s perspective, Motel 6’s are better than Hilton hotels?).

The same blind spot is apparent in the Wal-Mart vs union run grocery stores debate. Wal-Mart caters to a lower socioeconomic class, by hiring and providing cheaper products to those at the lower end of the income distribution. So it makes sense that their employees are paid less than their union run grocery stores counterparts, who cater to a higher socioeconomic class. Seen in that aspect, Wal-Mart is no different than the Motel 6. And since it’s our ghettos and poor areas that are plagued by unemployment, empty lots and general lack of opportunities, the Wal-Mart model is a superior model for the ghettos and poor areas.

The same blind spot resurfaces when talking about for-profit colleges. When comparing for-profit colleges to non-profits, critics will primarily focus on graduation rates and default rates, taking nothing else into account. But what happens when you take target market into account?

For-profit colleges tend to cater primarily to the marginalized segments of society: working mothers, high school drop outs, older people trying to change careers, and people who are in a rush to graduate. In other words, the riskier segment of society. The very same people that the non-profit education system often ignores.

Seen from this perspective, it’s expected that for-profit schools will be worse than non-profits when it comes to student debt. It’s expected because they cater to riskier students, so they are going to have a larger variance of outcome – whether that is graduation rates, or student loan repayment. But catering to a riskier segment of the population is not something that should be punished, it should be encouraged. Lets remember, for-profits are actually doing what we berate businesses to do – serve those at the bottom, often forgotten by others. They are a lot better at helping students who may have messed up through high school and want to change their lives around.

And this is without even mentioning all of the other benefits that come from for-profit colleges vs traditional colleges. For example, a significantly shorter time to graduation (averaging 3 years, when non-profits are getting closer to 6 years – a huge gain in opportunity cost), more income oriented majors (even the worst of the for-profit colleges will never have such time wasted majors like Chicano Studies, for example) and a clear path towards graduation. All benefits that primarily help the marginalized segments of society.

In the interest of full disclosure, I should mention that I graduated from a for-profit institution. I got my BS in 3 years. Before that I was a high school drop out (in 10th grade) with about a 2.0 GPA. I had only a GED and no community college credits. I was also the child of a poor single mother, living in Compton, Ca. The group of friends I currently run with all have similar stories – all of us grew up poor, are minorities and graduated from the same for-profit college. None of us received any grants (my mom refused to fill out the FAFSA – she always hated anybody knowing how much she made and was convinced I would find out). More importantly, in the for-profit college I went to there were others – not a majority, but certainly a strong minority – in the same situation I grew up in. It’s the privileged kids that were the exception at the for-profit college, not the the poor minorities.

All of us, also, are currently successful engineers. We all make around 6 figures a year or more. All of us with just the bachelors degree from the for-profit college (I have some undergraduate and graduate work at UCSD, but never completed a full degree there). Without a doubt, graduating from that for-profit college was the single best thing I could have done for my life. Without it, my life would have been very different.

Update: Matt Rognlie makes a similar point here.

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